2015 (2) TMI 781 - AT - Customs

Tribunal overturns confiscation order under Customs Act, highlights testing procedures and liability without mens rea

Coral Healthcare Pvt Ltd Versus Commissioner of Customs (Imports), Nhava Sheva

The Tribunal allowed the appeal, setting aside the lower authorities' orders for confiscation and penalty of goods under the Customs Act. It emphasized ... Import of Sub-standard quantity goods - Re-export - Confiscation of goods - Violation of Drug and Cosmetics Act, 1940 and rules - Statutory sampling plan not followed- Not tested as per Drugs and Cosmetics rules. - Held that:- On going through the above provision as regards the standard of goods i.e. condoms, it is provided that standard of mechanical contraceptives should be as provided under the Schedule R. According to which testing of Bursting Volumes and Pressure test should be done in accordance with plan set out in Annexure III to this Schedule. Annexure III prescribed that for batch size 150001 lakhs to 5 lakhs, the sample size should be 315 pieces and out of 315 pieces if the rejection number is 11 or more the batch is liable for rejection. As against the aforesaid method of testing provided under Drugs and Cosmetics Rules, 1945, it is observed from the test report given by Central Drugs Testing Laboratory, Chennai, the norms prescribed in Rules were not followed inasmuch as batch size taken 45 pieces, therefore the test carried out by the Central Drugs Testing Laboratory, Chennai can not be considered in accordance with law. On this serious discrepancy, the appellant pointed out to the authority and also requested the re-testing of the sample in accordance with the method prescribed under Drugs and Cosmetics Rules, 1945. The same was neither considered nor sample was re-tested. Therefore, I am of the view that subject goods was not liable for confiscation. I also agree with the Ld. Counsel that Rule 141 of the Drugs and Cosmetics Rules, 1945 provides for re-shipment of the goods and goods admittedly re-exported. For this reason also the goods are not liable for confiscation and also not liable for consequential penalty. The ratio applicable of the judgments- [2008 (7) TMI 671 - CESTAT, MUMBAI] [2009 (11) TMI 773 - CESTAT BANGALORE] relied upon by the Ld. Counsel are squarely applicable in the present case. Decided in favour of appellant. Issues:1. Confiscation of goods under Section 111(d) of the Customs Act, 1962.2. Imposition of penalty under Section 112(a) of the Customs Act, 1962.3. Compliance with Drug and Cosmetics Act, 1940 and Rules thereunder.4. Proper testing procedures under Drugs and Cosmetics Rules, 1945.5. Validity of re-shipment option under Rule 141 of Drugs and Cosmetics Rules, 1945.Confiscation of Goods and Imposition of Penalty:The appellant filed a bill of entry for 'Latex Prophylactic Condoms' subject to ADC NOC. Three out of four batches were released, but one batch was not given ADC NOC due to substandard quality. The adjudicating authority confiscated the goods valued at Rs. 4,83,740 under Section 111(d) of the Customs Act, 1962, and imposed a penalty of Rs. 40,000 under Section 112(a). The Commissioner of Customs (Appeals) upheld this decision, stating that the violation of the Drug and Cosmetics Act, 1940, and rules warranted confiscation and penalty, irrespective of mens rea. The appellant's argument that they were not responsible for the violation was rejected based on legal precedents that mens rea is not necessary for liability under the Customs Act.Compliance with Drug and Cosmetics Act, 1940:The appellant contested the testing procedure of the Central Drugs Testing Laboratory, Chennai, arguing that it did not follow the prescribed method under Drugs and Cosmetics Rules, 1945. The rules specify testing standards for mechanical contraceptives, including Bursting Volume and Pressure Test, with statistical sampling requirements. The appellant raised concerns about the test report's accuracy and requested re-testing, but this was not granted. The Tribunal found discrepancies in the testing process, concluding that the goods were not liable for confiscation under the Act.Proper Testing Procedures under Drugs and Cosmetics Rules, 1945:The Tribunal analyzed the testing requirements outlined in the Drugs and Cosmetics Rules, 1945, specifically focusing on the Bursting Volume and Pressure Test for condoms. It noted that the testing conducted by the Central Drugs Testing Laboratory did not align with the prescribed method, as the sample size was significantly lower than the mandated 315 pieces for the batch size. Due to this non-compliance, the Tribunal determined that the goods should not have been confiscated based on the flawed testing process.Validity of Re-shipment Option under Rule 141:The appellant invoked Rule 141 of Drugs and Cosmetics Rules, 1945, which allows for re-shipment of goods. They argued that since re-exportation of the goods was carried out after being found substandard, confiscation was unwarranted. Citing relevant case laws, the appellant contended that the provision for re-shipment should prevent confiscation. The Tribunal agreed with this argument, emphasizing that the goods were re-exported and, therefore, not subject to confiscation or penalty as per the rule.In conclusion, the Tribunal set aside the orders of the lower authorities, allowing the appeal and providing relief to the appellant in accordance with the law. The decision highlighted the importance of adhering to proper testing procedures, compliance with statutory rules, and the availability of re-shipment options under relevant regulations in determining the confiscation and penalty liabilities in customs cases.